Better Times Are Ahead for Campbell Soup

Campbell Soup (NYSE: CPB) posted decent results for the second quarter, a welcome relief for investors after a dismal performance in the first quarter. Campbell outperformed analysts' expectations on both earnings and revenue. The company's latest acquisition of Kelsen proved to be profitable for the company, as it was able to expand its business in China.

However, the biggest questions for investors are if Campbell could sustain this performance in 2014 and if it will outperform General Mills (NYSE: GIS) and Kellogg (NYSE: K) like it did last year.

Reviewing the resultsAfter a poor start to the fiscal year, Campbell came back with a good set of numbers in the second quarter. Sales from continuing operations increased 5.5% to $2.3 billion, and net earnings rose 71% to $325 million versus the year-ago period. The gross margin improved to 35.7% as compared to 35.2% last year. The acquisition of Kelsen added $92 million to revenue, and this is expected to further contribute to the top line this year, as sales are estimated to grow by 4%-5%.

It is all positive for Campbell, and the company is taking steps to keep this momentum going.

Campbell's movesCampbell is working hard to increase its sales, especially soups. The company has launched eight new soups, including its first Latin-inspired soup, and is counting on them to boost results. The acquisition of Kelsen was a strategic move by Campbell, as it helped the company to gain market share in China and other developing markets, apart from increasing its product portfolio. Kelsen helped Campbell record 14% growth in the baking and snacks segment, and the momentum should carry forward as the acquisition is integrated further.

Campbell is also witnessing an improvement in trends in the industry. In the first quarter, the company's core business was subdued because of weakness in the U.S. consumer market. Campbell also invested considerable resources in the promotion of its new products and the Bolthouse farms brand. Also, the company recalled some of its plum organic products.

However, in the second quarter, the core business strengthened due to the late timing of the holiday season. Campbell's spending on marketing and promotions increased 3%, which was offset by its extraordinary performance in the sausage business. Campbell is expecting to reap the fruits of money spent on advertising and promotions going forward. Campbell is also expecting double-digit growth in sweet biscuits in Indonesia and Australia, and this should further add to its growth.

What makes Campbell better?Campbell's investment in marketing, new products, and the Kelsen acquisition should help it grab market share from other food companies, such as General Mills and Kellogg. As Fool writer Adem Tahiri writes, "Neither Kellogg nor General Mills, for instance, have made the organic or veggie investments that Campbell has." Retail penetration of organic food is growing at around 20%, so Campbell has a head start over both Kellogg and General Mills in this space.

Also, despite being the priciest of the three stocks, Campbell could be the one with the most upside, as Tahiri would have us believe. He cites growth in the Plum Organics and Kelsen brands as the reasons why Campbell could be a better pick. Kellogg, on the other hand, is the cheapest of the three, but it is facing trouble in both the cereals and snacks markets. General Mills, meanwhile, is also seeing weakness in the cereals business and a drop in sales of Yoplait, its Greek yogurt. But Campbell is projecting better times ahead, making it a better choice.

The bottom lineWith a trailing of P/E 26.7 and forward of P/E 16.5, Campbell looks promising. It is making some good moves, and there is a chance that it might take market share from its rivals. All of these factors make Campbell a stock that is good enough to add to your watchlist.

Put your money where your mouth isMillions of Americans have waited on the sidelines since the market meltdown in 2008 and 2009, too scared to invest and put their money at further risk. Yet those who've stayed out of the market have missed out on huge gains and put their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment icon found on every comment.